SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 6, 1999

                                       OR

[ ]   TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from_______________ to ________________

                         Commission file number 0-19649

                       CHECKERS DRIVE-IN RESTAURANTS, INC.
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

          DELAWARE                                         58-1654960
---------------------------------                  -----------------------------
(State or other jurisdiction of                         (I.R.S. employer
incorporation or organization)                         identification no.)

14255 49TH STREET NORTH, BUILDING 1
SUITE 101
CLEARWATER, FL                                               33762
----------------------------------------           -----------------------------
(Address of principal executive offices)                   (Zip code)

Registrant's telephone number, including area code: (727) 519-2000

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

         The Registrant had 9,387,852 shares of Common Stock, par value $.001
per share, outstanding as of October 14, 1999.

<PAGE>

                                TABLE OF CONTENTS



PART I   FINANCIAL INFORMATION                                              PAGE
                                                                            ----
ITEM 1   FINANCIAL STATEMENTS

               CONDENSED CONSOLIDATED BALANCE SHEETS
                 SEPTEMBER 6, 1999 AND DECEMBER 28, 1998......................3

               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
                 COMPREHENSIVE INCOME QUARTERS ENDED SEPTEMBER 6, 1999
                 AND SEPTEMBER 6, 1998 AND THREE QUARTERS ENDED
                 SEPTEMBER 6, 1999 AND SEPTEMBER 6, 1998 .....................5

               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 THREE QUARTERS ENDED SEPTEMBER 6, 1999 AND
                 SEPTEMBER 6, 1998 ...........................................6

               NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...........8

ITEM 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS...........................................14

ITEM 3   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........23

PART II  OTHER INFORMATION

ITEM 1   LEGAL PROCEEDINGS...................................................23

ITEM 2   CHANGES IN SECURITIES...............................................26

ITEM 3   DEFAULTS UPON SENIOR SECURITIES.....................................26

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................26

ITEM 5   OTHER INFORMATION...................................................27

ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K....................................27



                                       2
<PAGE>

PART I.   FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS


                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)
                                  (UNAUDITED)

                                     ASSETS


<TABLE>
<CAPTION>
                                                                       SEPTEMBER 6,   DECEMBER 28,
                                                                           1999           1998
                                                                       ------------   ------------
<S>                                                                       <C>           <C>
CURRENT ASSETS:

Cash and cash equivalents                                                 $ 11,658      $  4,601
Restricted cash                                                              3,009         1,880
Investments                                                                     60            47
Accounts receivable, net                                                     3,410         2,597
Notes receivable, net - current portion                                        126           153
Inventory                                                                    3,043         1,017
Prepaid expenses and other current assets                                    1,997           310
Assets held for sale                                                         3,662         1,131
                                                                          --------      --------
    Total current assets                                                    26,965        11,736

Property and equipment, net                                                124,996        61,914
Investment in affiliate, net of accumulated amortization                      --          23,001
Notes receivable, net - less current portion                                   364           375
Goodwill, net of accumulated amortization                                   47,928         8,477
Reacquired franchise and territory rights, net of accumulated
  amortization                                                              10,833        11,620
Other intangibles, net of accumulated amortization                           3,593         3,783
Other assets, net of accumulated amortization                                2,195         2,400
                                                                          --------      --------
                                                                          $216,874      $123,306
                                                                          ========      ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       3

<PAGE>

                      CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)
                                  (UNAUDITED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                         SEPTEMBER 6,     DECEMBER 28,
                                                                             1999             1998
                                                                         ------------     ------------
<S>                                                                        <C>             <C>

CURRENT LIABILITIES:

Senior notes, net of discount - current                                    $  51,677       $    --
Current maturities of long-term debt and obligations
under capital lease                                                           20,839           1,490
Accounts payable                                                              12,542           3,686
Reserves for restaurant relocations and abandoned sites                        4,707           3,148
Accrued liabilities                                                           19,774           7,541
                                                                           ---------       ---------
    Total current liabilities                                                109,539          15,865

Senior notes, net of discount                                                   --            55,768
Long-term debt, less current maturities                                       18,172           7,819
Obligations under capital lease, less current maturities                       5,949           5,230
Long-term reserves for restaurant relocations and adandoned sites              2,324           2,275
Minority interest in joint ventures                                              561            --
Other long-term liabilities                                                   11,264           1,830
                                                                           ---------       ---------

    Total liabilities                                                        147,809          88,787

STOCKHOLDERS' EQUITY:

Common Stock, $.001 par value, authorized 175,000,000 shares, issued
    9,387,852 at September 6, 1999 and 6,117,337 at December 28, 1998
    as adjusted for the reverse split                                              9               6
Additional paid-in capital                                                   135,349          98,593
Retained deficit                                                             (66,293)        (63,680)
                                                                           ---------       ---------
                                                                              69,065          34,919
Less treasury stock, at cost, 48,242 shares at December 28, 1998
     and no shares at September 6, 1999                                         --              (400)
                                                                           ---------       ---------
     Net stockholders' equity                                                 69,065          34,519
                                                                           ---------       ---------
                                                                           $ 216,874       $ 123,306
                                                                           =========       =========
</TABLE>

SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       4

<PAGE>

                      CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                    (In thousands except per share amounts)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                  QUARTER ENDED         THREE QUARTERS ENDED
                                            ------------------------  -----------------------
                                             SEPT. 6,      SEPT. 6,     SEPT. 6,     SEPT. 6,
                                               1999          1998         1999         1998
                                            ------------ -----------  ------------ ----------
<S>                                         <C>          <C>          <C>          <C>
REVENUES:

Restaurant sales                            $  43,782    $  33,505    $ 107,980    $  97,640
Franchise revenues and fees                     1,660        1,121        3,623        3,272
Owner fee income                                  162          170          488          498
                                            ---------    ---------    ---------    ---------
    Total revenues                          $  45,604    $  34,796    $ 112,091    $ 101,410
                                            ---------    ---------    ---------    ---------

COSTS AND EXPENSES:
Restaurant food and paper costs                13,664       10,787       33,257       31,337
Restaurant labor costs                         14,597       10,348       34,498       30,399
Restaurant occupancy expense                    2,711        1,686        6,294        4,902
Restaurant depreciation and amortization        2,204        1,632        5,431        4,996
Other restaurant operating expense              4,133        2,982       10,004        8,603
Advertising expense                             2,279        2,585        6,376        6,976
Owner depreciation                                352          158        1,057          439
Other depreciation and amortization               814          559        1,955        1,727
General and administrative expenses             4,047        3,000       10,104        9,258
Losses on assets to be disposed                  --           --           --            885
                                            ---------    ---------    ---------    ---------
    Total costs and expenses                   44,801       33,737      108,976       99,522
                                            ---------    ---------    ---------    ---------

    Operating income                              803        1,059        3,115        1,888

OTHER INCOME (EXPENSE):
Interest income                                   197          151          497          306
Gains on bond repurchases                          74         --            528         --
Loss on investment in affiliate                  (495)        (528)      (1,379)        (768)
Interest expense                               (1,801)      (1,573)      (4,955)      (4,762)
Interest-loan cost and bond discount
  amortization                                   (109)         (94)        (312)        (279)
                                            ---------    ---------    ---------    ---------
Loss before minority interests and income
  tax expense                                  (1,331)        (985)      (2,506)      (3,615)
Minority interests in losses                        4         --              4         --
                                            ---------    ---------    ---------    ---------
Loss before income tax expense                 (1,327)        (985)      (2,502)      (3,615)
Income tax expense                                 37           26          111           78
                                            ---------    ---------    ---------    ---------
        Net loss                               (1,364)      (1,011)      (2,613)      (3,693)
                                            =========    =========    =========    =========

        Comprehensive loss                  $  (1,364)   $  (1,011)   $  (2,613)   $  (3,693)
                                            =========    =========    =========    =========

Net loss per common share -
  (basic and diluted                        $   (0.19)   $   (0.17)   $   (0.40)   $   (0.60)
                                            =========    =========    =========    =========

Weighted average number of common
  shares-basic                                  7,208        6,117        6,481        6,117
                                            =========    =========    =========    =========
Weighted average number of common
  shares-diluted                                7,208        6,117        6,481        6,117
                                            =========    =========    =========    =========
</TABLE>

                                       5



<PAGE>

                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                               THREE QUARTERS ENDED
                                                            ---------------------------
                                                            SEPTEMBER 6,   SEPTEMBER 6,
                                                                1999           1998
                                                            ------------   ------------
<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                      $ (2,613)      $ (3,693)
Adjustments to reconcile net loss to net cash
  provided by operating activities:
    Depreciation and amortization                                8,443          7,162
    Provision for losses on assets to be disposed of                --            885
    Gain (loss) on disposal of property & equipment                 (1)            23
    Gains on bond repurchases                                     (528)            --
    Amortization of deferred loan costs and bond costs
    and discounts                                                  314            278
    Provision for bad debt                                         275            210
    Loss, net of amortization on investment in affiliate         1,379            768
    Provision for income tax                                       111             78
    Minority interests in losses                                    (4)            --
Changes in assets and liabilities:
    Increase in accounts receivable                               (181)        (1,719)
    Decrease in notes receivable                                   164            158
    (Increase) decrease in inventory                               (16)            28
    (Increase) decrease in prepaid expenses and other
    current assets                                              (2,348)           750
    Decrease in deposits and other assets                          892              1
    Increase in accounts payable                                 4,228          1,741
    Increase (decrease) in accrued liabilities                   2,080         (2,824)
                                                              --------       --------
         Net cash provided by operating activities              12,195          3,846
                                                              --------       --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures                                            (1,867)        (1,408)
Acquisitions of restaurants                                       (142)          (855)
Cash received on business purchase                               1,461             --
(Increase) decrease in investments                                 (13)           346
Proceeds from sale of assets                                       142            318
Cash paid for investments in affiliates                             --            (32)
                                                              --------       --------
    Net cash used in investing activities                         (419)        (1,631)
                                                              --------       --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in restricted cash                                        388             --
Repayments of senior notes                                      (3,600)        (1,226)
Principal payments on long-term debt and capital
 lease obligations                                              (1,492)          (882)
Net proceeds from issuance of common stock                          --             55
Distributions to minority interests                                (15)            --
Other equity funding                                                --            116
                                                              --------       --------
    Net cash used in financing activities                       (4,719)        (1,937)
                                                              --------       --------
    Net increase in cash                                         7,057            278
CASH AT BEGINNING OF PERIOD                                      4,601          4,008
                                                              --------       --------
CASH AT END OF PERIOD                                         $ 11,658       $  4,286
                                                              ========       ========
</TABLE>

                                       6

<PAGE>

                      CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -(Continued)
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                      THREE QUARTERS ENDED
                                                                  ---------------------------
                                                                  SEPTEMBER 6,   SEPTEMBER 6,
                                                                      1999           1998
                                                                  ------------   ------------
<S>                                                                 <C>            <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--

    Interest paid, net                                              $  4,034       $  3,954
                                                                    ========       ========
    Income taxes paid                                               $     --       $     --
                                                                    ========       ========
   Reverse acquisition of business:
     Estimated fair value of assets acquired                        $ 75,929       $     --
     Goodwill                                                         28,591             --
     Liabilities assumed                                             (57,801)            --
     Consideration paid                                              (48,180)            --
                                                                    --------       --------
          Net cash acquired                                         $ (1,461)      $     --
                                                                    ========       ========

SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
     Capital lease obligations incurred                             $    481       $     --
                                                                    ========       ========
     Notes payable incurred upon acquisition of restaurants         $    765       $     --
                                                                    ========       ========
</TABLE>



                                       7
<PAGE>


                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                AND SUBSIDIARIES
                         NOTES TO CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A)      BASIS OF PRESENTATION - The accompanying unaudited financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary to
present fairly the information set forth therein have been included. The merger
of Checkers Drive-In Restaurants, Inc. ("Checkers") with Rally's Hamburgers,
Inc. ("Rally's") on August 9, 1999 (see Note 2, "Merger") was accounted for as a
reverse acquisition as former shareholders of Rally's Hamburgers, Inc. owned a
majority of the outstanding stock of Checkers Drive-In Restaurants, Inc.
subsequent to the merger. Therefore, for accounting purposes, Rally's
Hamburgers, Inc. is deemed to have acquired Checkers Drive-In Restaurants, Inc.
All 1998 financial information presented herein represents only the financial
results for Rally's Hamburgers, Inc. The 1999 financial information presented in
the Condensed Consolidated Statements of Operations and Comprehensive Income and
the Condensed Consolidated Statements of Cash Flows represents the results for
Rally's Hamburgers, Inc. for the periods stated and include the financial
results for Checkers Drive-In Restaurants, Inc. for only the post-merger four
week period ended September 6, 1999. The Condensed Consolidated Balance Sheet as
of September 6, 1999 represents the combined balance sheet of the merged entity
and the Condensed Consolidated Balance Sheet as of December 28, 1998 represents
Rally's only. The operating results for the three quarters ended September 6,
1999, are not necessarily an indication of the results that may be expected for
the fiscal year ending January 3, 2000. Except as disclosed herein, there has
been no material change in the information disclosed in the notes to the
consolidated financial statements included in the Annual Report on Form 10-K/A
for the year ended December 28, 1998, for Checkers Drive-In Restaurants, Inc.
and Rally's Hamburgers, Inc. Therefore, it is suggested that the accompanying
financial statements be read in conjunction with each company's December 28,
1998 consolidated financial statements.

(B)      PURPOSE AND ORGANIZATION - The principal business of Checkers Drive-In
Restaurants, Inc. ("the Company") is the operation and franchising of Checkers
and Rally's restaurants. At September 6, 1999, there were 465 Rally's
restaurants operating in 18 different states and there were 469 Checkers
restaurants operating in 22 different states, the District of Columbia, Puerto
Rico and West Bank in the Middle East. Of those restaurants, 463 were Company
operated (including 12 joint venture restaurants) and 471 were operated by
franchisees, including 23 Company-owned restaurants in Western markets which are
operated as Rally's restaurants by CKE Restaurants, Inc. ("CKE"), a significant
shareholder of the Company, under an operating agreement which began in July,
1996. Two additional Company-owned stores covered by the operating agreement
have been converted to the Carl's Jr. format and are not included in the above
store count. The accounts of the joint ventures have been included with those of
the Company in these condensed consolidated financial statements. Intercompany
balances and transactions have been eliminated in consolidation and minority
interests have been established for the outside partners' interests. The Company
reports on a fiscal year which will end on the Monday closest to December 31st.
Each quarter consists of three 4-week periods, with the exception of the fourth
quarter which consists of four 4-week periods. The Company's 1999 fiscal year
will include a 53rd week, thereby increasing the fourth quarter to seventeen
weeks.

(C)      REVENUE RECOGNITION - Franchise fees are generated from the sale of
rights to develop, own and operate restaurants. Such fees are based on the
number of potential restaurants in a specific area which the franchisee agrees
to develop pursuant to the terms of the franchise agreement between the Company
and the franchisee and are recognized as income on a pro rata basis when
substantially all of the Company's obligations per location are satisfied,
generally at the opening of the restaurant. Franchise fees are nonrefundable.
The Company receives royalty fees from franchisees based on a percentage of each
restaurant's gross revenues. Royalty fees are recognized as earned.

(D)       CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
instruments purchased with an original maturity of less than three months to be
cash equivalents. Restricted cash consists of cash on deposit with various
financial institutions as collateral to support the Company's obligations to
certain states for potential workers' compensation claims. This cash is not
available for use until such time that the respective states permit its release.

(E)      RECEIVABLES - Receivables consist primarily of franchise fees,
royalties and notes due from franchisees, owner fee income, receivables from the
sale of modular restaurant packages and advances to Rally's National Advertising
Fund which

                                       8
<PAGE>

provides broadcast creative production for use by the Rally's corporate and
franchise restaurants. Allowances for doubtful receivables were $3.6 million at
September 6, 1999 and $969,000 at December 28, 1998.

(F)      INVENTORY - Inventories are stated at the lower of cost (first-in,
first-out (FIFO) method) or market.

(G)      DEFERRED LOAN COSTS AND BOND DISCOUNTS- Deferred loan costs incurred in
connection with Rally's mortgages payable to FFCA Acquisition Corporation (see
Note 5) and discounts related to the Senior Notes are being amortized on the
effective interest method.

(H)      IMPAIRMENT OF LONG LIVED ASSETS - The Company accounts for tangible
property and intangibles under the Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of" (SFAS 121), which requires the write-down of certain
intangibles and tangible property associated with under performing sites to the
level supported by the forecasted discounted cash flow in cases where
undiscounted cash flow projected does not exceed the book value of the related
assets.

(I)       PROPERTY AND EQUIPMENT - Property and equipment are stated at cost
except for assets that have been impaired, for which the carrying amount is
reduced to estimated fair value. Assets under capital leases are stated at their
fair value at the inception of the lease. Depreciation and amortization are
computed on straight-line method over the estimated useful lives of the assets.
Property held for sale includes various excess restaurant facilities and land.
The aggregate carrying value of property and equipment held for sale is
periodically reviewed and adjusted downward to market value, when appropriate.

(J)      INTANGIBLES - Goodwill and other intangibles are being amortized over
27.5 years, 20 years and 3 to 7 years, respectively, on a straight-line basis.

(K)       INCOME TAXES - The Company accounts for income taxes under the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Under the asset or liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date (see Note 6).

(L)     DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS -  The balance
sheets as of September 6, 1999 and December 28, 1998 reflect the fair value
amounts which have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment is required
in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts. The carrying amounts of cash and
cash equivalents, receivables, accounts payable, and long-term debt are a
reasonable estimate of their fair value. Interest rates that are currently
available to the Company for issuance of debt with similar terms and remaining
maturities are used to estimate fair value for debt issues that are not quoted
on an exchange.

(M)       EARNINGS PER SHARE - The Company calculates basic and diluted earnings
(loss) per share in accordance with the Statement of Financial Accounting
Standard No. 128, "Earnings per Share". Although Checkers is the surviving legal
entity after the merger with Rally's, for accounting purposes the merger is
treated as a reverse acquisition of Checkers by Rally's. Therefore, only the
historical net income (loss) of Rally's is included in the historical financial
results of the Company for all periods prior to the merger. However, for
purposes of computing earnings per share, the weighted average number of
Checkers outstanding shares is used for periods prior to the merger. This
weighted average has been adjusted for all periods presented to reflect the
impact of the one-for-twelve reverse split that occurred on August 9, 1999.

(N)       OWNER FEE INCOME AND DEPRECIATION - Revenue received as a result of
the operating agreement with CKE is referred to as owner fee income in the
accompanying consolidated financial statements. Depreciation expenses related to
the ongoing investment in the CKE-operated restaurants are referred to as owner
depreciation in the accompanying consolidated financial statements.

(O)     SEGMENT REPORTING - SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" changes the way public companies report
information about segments of their business in their annual financial
statements and requires them to report selected segment information in their
quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997.

                                       9
<PAGE>

The Company operates primarily in the quick-service restaurant industry. The
Company's Champion Modular Restaurants division does not have a material effect
upon the Company's financial statements.

(P)       USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.

(Q)     RECLASSIFICATIONS - Certain amounts in the 1998 financial statements
have been reclassified to conform to the 1999 presentation.

NOTE 2:  MERGER

         On August 9, 1999, Checkers Drive-In Restaurants, Inc. and Rally's
Hamburgers, Inc. completed their merger. On that date, Rally's owned 19,130,930
shares (26.06%) of the outstanding common stock of Checkers and public
shareholders owned the remaining 54,277,177 shares of Checkers common stock.
Checkers issued 58,377,134 shares of its common stock to Rally's shareholders in
exchange for all the outstanding common stock of Rally's (29,335,243 outstanding
shares) at a 1 to 1.99 exchange ratio. The approximately 19.1 million shares of
Checkers common stock that was owned by Rally's was retired. After the
transaction, Rally's shareholders owned 58,377,134 shares (51.8% of the
outstanding common stock of the new Checkers) and the remaining 54,277,117
shares (48.2% of Checker common stock) was held by then current shareholders of
Checkers. Checkers and Rally's each received investment bankers' opinions as to
the fairness of the exchange rate used in the merger. Immediately following the
merger and a one-for-twelve reverse stock split, there were 9,387,852 shares
outstanding.

         The merger transaction was accounted for under the purchase method of
accounting and was treated as a reverse acquisition as the stockholders of
Rally's received the larger portion (51.8%) of the voting interests in the
combined enterprise. Accordingly, Rally's was considered the acquirer for
accounting purposes and will record Checkers' assets and liabilities based upon
their fair market value. Although certain adjustments have been recorded to
estimate fair market value, appraisals necessary to determine the fair market
value of the properties will not be completed until the fourth quarter of fiscal
year 1999. Although the Company believes that the purchase price allocation will
not differ significantly from the preliminary purchase price allocation that has
been recorded, it is possible that a significant adjustment to the purchase
price could be recorded when the appraisals are complete.

         The following table represents the unaudited pro forma results of
operations for the 36-week periods ended September 6, 1999 and September 6, 1998
assuming the merger and reverse split had occurred on December 29, 1997. These
pro forma results have been prepared for comparative purposes only and are not
necessarily indicative of what would have occurred had the merger occurred at
that date or of results which may occur in the future.

                                                   36 WEEKS        36 WEEKS
(In thousands, except per share amounts)             ENDED           ENDED
                                                 SEPT. 6, 1999   SEPT. 6, 1998
                                                 -------------   -------------

Total revenue                                      $ 200,394       $ 205,824
Operating  income                                  $   2,317       $   4,731
Net loss                                           $  (4,726)      $  (3,806)
Net loss per share of common stock                 $   (0.50)      $   (0.41)

Weighted average number of shares outstanding          9,388           9,388

NOTE 3:  MANAGEMENT CHANGES

         On September 7, 1999, the Board of Directors named member Peter O'Hara
as Vice-Chairman and the Board's designated representative to oversee the
Company's operations. Mr. O'Hara is the President of Capital Management of
L.I.N.Y., Inc., a Checkers area developer for Long Island, New York, and has
extensive experience in restaurant management and franchising operations. Mr.
O'Hara replaced Tom Thompson in the Vice-Chairman role who stepped down to focus
his full time efforts on the operations of CKE Restaurants, Inc., where he
serves as President and Chief Operating Officer. Mr. Thompson will remain on the
Company's Board of Directors. The Company subsequently announced the promotion
of David Miller to Chief Operating Officer; the appointment of Annette Shehan as
Senior Vice President of Marketing; the promotion of Richard Turer to Vice
President of Marketing; the promotion of Keith Sirois to Vice President

                                       10
<PAGE>

of Franchise Operations; and the promotion of Dick Sveum to Vice President of
Franchise Sales and Development. With the exception of Ms. Shehan, who will also
hold the same position at Santa Barbara Restaurant Group, Inc., the new
leadership of the Company was selected from internal candidates with significant
experience with the Checkers and Rally's brands. On October 7, 1999, the Company
accepted the resignation of its Chief Executive Officer and Director, James J.
Gillespie. A successor has not been named at this time.

NOTE 4:  LIQUIDITY

         The Company has a working capital deficit of $82.6 million at September
6, 1999. This significant deficit is due to the short term maturity of the
amounts due pursuant to both the Restated Credit Agreement and the 9 7/8% Senior
Notes. Excluding the current maturity of long-term debt, the Company will
continue to have a working capital deficit as approximately 87.6% of it's assets
are long-term (primarily property, equipment, and intangibles), and primarily
all liabilities, including trade payables, accrued expenses, and property and
equipment payables, are current liabilities of the Company.

         A significant portion ($17.4 million) of the Company's debt relates to
the Restated Credit Agreement that originally was to mature on July 31, 1999.
During March and April 1999, Santa Barbara Restaurant Group, Inc. ("SBRG"), a
Company which owns 4.3% of the Company's outstanding common stock acquired
approximately $4.9 million of debt due to three members of the lender group. The
terms associated with the SBRG debt are identical to terms that other
participants of the lender group have pursuant to the Restated Credit Agreement.
On March 24, 1999, SBRG and the other remaining members of the lender group
agreed to an extension of the maturity date to April 30, 2000. On October 6,
1999, a payment in the amount of $2.5 million was made to the lender group
reducing the outstanding principal balance to $14.9 million. As of June 11,
1999, Fidelity National Financial, Inc. owned approximately 29.0% of the
outstanding common stock of SBRG.

         At September 6, 1999, the remaining principal amount of the 9 7/8%
Senior Notes to mature on June 15, 2000 that were originally sold by Rally's
Hamburgers, Inc. was $51.7 million.

         The Company is actively involved in a debt reduction and refinancing
strategy that includes sale-leaseback transactions of approximately $3.6 million
and a potential rights offering to existing shareholders with expected net
proceeds of approximately $5.7 million. The Company believes the majority of the
debt reduction will be accomplished by the sale of Company-owned stores to new
or existing franchisees in transactions that would provide immediate funds to
reduce debt and would also provide a continued source of income through future
royalties. As of October 11, 1999, the Company had entered into non-binding
letters of intent to sell 160 restaurants in eight markets, the sale of which is
expected to generate after-tax net proceeds of $36.5 million that would be
utilized to reduce debt. The Company is also in various stages of negotiation
with parties that have expressed interest in purchasing other markets. Although
the Company believes that it's debt reduction and refinancing strategy will be
successful, there can be no assurance that the Company will be able to satisfy
the entire principal balances of the Restated Credit Agreement due April 30,
2000 and Senior Notes due June 15, 2000.


                                       11
<PAGE>


NOTE 5:    LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                SEPTEMBER 6,   DECEMBER 28,
                                                                    1999           1998
                                                                ------------   ------------
<S>          <C>                                                  <C>            <C>
Note payable under Restated Credit Agreement at 13%
   interest due each 28 day period, originally maturing
   July 31, 1999, subsequently extended to April 30, 2000
   (see Note 4)                                                   $ 17,432       $     --

Mortgages payable to FFCA Acquisition Corporation secured
   by 24 Company-owned Checkers restaurants, payable in 240
   aggregate monthly installments of $93,213, including
   interest at 9.5%                                                  9,885             --

Mortages payable to FFCA Acquisition Corporation secured
   by eight Company-owned Rally's restaurants payable in 240
   aggregate monthly installments of $40,082, including
   interest at 9.5%. The Company utilized the net proceeds
   of the loan to retire Senior Notes (see Note 44)                  4,250          4,300

Notes payable to former Rally's franchise owners for
   acquisition of markets, secured by the related assets
   acquired, with maturities through May 1, 2004, bearing
   interest at rates ranging from 7.5% to 9%. The notes are
   payable in monthly principal and interest installments
   ranging from $4,742 to $50,211                                    4,351          4,022

Notes payable to former Checkers franchise owners for
   acquisitions of markets, with interest rates primarily
   ranging from 9.0% to 11.32%, payable monthly                        766             --

Notes payable to banks, maturing at various dates through
   November 10, 2001, secured by property and/or equipment,
   bearing interest ranging from 1/2% above prime to 9.25%
   The notes are payable in monthly principal and interest
   installments ranging from $1,531 to $13,333. Interest is
   payable monthly                                                     170            401

Other, at interest rates ranging from 7.0% to 10%                      837             --
                                                                  --------       --------
Total long-term debt                                                37,691          8,723
Less current installments                                          (19,519)          (904)
                                                                  --------       --------
Long-term debt, less current maturities                           $ 18,172       $  7,819
                                                                  ========       ========
</TABLE>

NOTE 6:  INCOME TAXES

         The Company recorded income tax benefit of $751,000 for the three
quarters ended September 6, 1999 and income tax benefit of $960,000 for the
three quarters ended September 6, 1998 or 30% and 26% of the respective losses
before income taxes. The Company then recorded a valuation allowance of $862,000
against deferred income tax assets for the three quarters ended September 6,
1999 and a valuation allowance of $1,038,000 against deferred income tax assets
for the three quarters ended September 6, 1998. The Company's total valuation
allowances of approximately $15.9 million as of September 6, 1999 is maintained
on deferred tax assets which the Company has not determined to be more likely
than not realizable at this time.

         On August 6, 1999 Rally's Hamburgers, Inc. merged into Checkers
Drive-In Restaurants, Inc. and both companies experienced a change in ownership
as defined by Internal Revenue Code Section 382. As a result of this merger,
these combined companies are significantly limited in utilizing their net
operating loss carryforwards arising before the ownership change to offset
future taxable income. It is anticipated that approximately $101.0 million of
net operating loss carryforwards to 1999 will expire as a result of the merger.

NOTE 7:  RELATED PARTIES

         Effective November 30, 1997, Checkers Drive-In Restaurants, Inc. and
Rally's Hamburgers, Inc. entered into a Management Services Agreement whereby
Checkers provided accounting, technology, and other functional and management
services to predominantly all of the operations of Rally's. Checkers received
fees from Rally's relative to the shared departmental costs times the respective
store count ratio. Upon completion of the merger of Checkers and Rally's, this
Agreement was terminated effective August 9, 1999. During the three quarters
ended September 6, 1999 and the three quarters ended September 6, 1998, Checkers
charged Rally's $4.7 million and $3.5 million, respectively in accordance with
the
                                       12
<PAGE>

Management Services Agreement. The increase in costs billed to Rally's was
primarily due to the transfer of various marketing and field management
personnel from Rally's to Checkers during the third quarter of 1998 and the
subsequent inclusion of the expenses for these personnel in the amounts billed
by Checkers to Rally's.

NOTE 8:  STOCK OPTION PLANS

         The Company currently has two stock option plans in effect including
the 1991 Stock Option Plan and the Stock Option Plan for Non-Employee Directors
that was adopted in 1994. Where applicable, all references to numbers of shares
have been adjusted for the one-for-twelve reverse split that was effected in
August 1999.

         In August 1991, the Company adopted the 1991 Stock Option Plan (the
1991 Stock Option Plan), as amended for employees whereby incentive stock
options, nonqualified stock options, stock appreciation rights and restrictive
shares can be granted to eligible salaried individuals. The plan was amended on
August 6, 1997 to increase the number of shares subject to the Plan from
3,500,000 to 5,000,000.

         In 1994, the Company adopted a Stock Option Plan for Non-Employee
Directors (The "Directors Plan"). The Directors Plan was amended on August 6,
1997 by the approval of the Company's stockholders to increase the number of
shares subject to the Directors Plan from 200,000 to 5,000,000 and provide for a
one-time grant of 25,000 shares to each non-employee director who was a Director
both immediately prior to and following the effective date of the amendment. As
of August 6, 1997, the Directors Plan provides for: (i) an option grant to new
Non-Employee Directors to 8,333 shares and (ii) an annual options grant of 1,666
shares. Options granted to Non-Employee Directors have a ten-year term and are
exercisable immediately upon grant.

         Pursuant to the Directors Plan, Checkers issued options to purchase a
total of 10,000 shares at an exercise price of $3.76 to existing directors on
December 29, 1998. On August 9, 1999, following the merger with Rally's, options
granted to certain former Rally's directors under the Rally's Non-Employee Stock
Option Plan were assumed by the Company under the Directors Plan as these
individuals became directors of the Company following the merger. These former
Rally's options became options to purchase shares of the stock of the Company at
exercise prices ranging from $3.20 to $30.15 per share. The number of options
assumed and the various exercise prices were calculated based upon the merger
exchange ratio of 1.99 to one and the subsequent one for twelve reverse stock
split. On August 17, 1999, a one time grant of 40,000 options was made to the
Chairman of the Board, a one time grant of 20,000 options was made to the Vice
Chairman, and a one time grant of 10,000 options was made to all other
non-employee directors pursuant to a proposal approved by the stockholders at
the annual meeting on August 5, 1999. On September 1, 1999 various directors
notified the Company of their decision to voluntarily cancel an aggregate of
372,022 outstanding options with exercise prices ranging from $9.75 to $30.15
per share.

         On August 9, 1999, following the merger with Rally's, the Company
assumed 291,063 options originally issued to employees of Rally's under the
Rally's Employee Stock Option Plan for individuals who became employees of the
Company. The number of options issued and the various exercise prices were
calculated based upon the merger exchange ratio of 1.99 to one and the
subsequent one for twelve reverse stock split. As a result, these former Rally's
options became options to purchase stock of the Company at prices ranging from
$3.2016 to $3.3924. The Company also issued options to purchase 8,333 shares on
August 5, 1999 and 90,000 shares on September 3, 1999 at prices ranging from
$2.50 to $3.3754.

         The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards no. 123, "Accounting for Stock Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the stock option plan for
employees been determined based on the fair value at the grant date for awards
in the first three quarters of 1999 and the first three quarters of 1998
consistent with the provisions of SFAS No. 123, net income (loss) would have
been reduced by $384,000 and $2.4 million respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in the first three quarters of fiscal 1999 and the first three quarters
of 1998, respectively: divided yield of zero percent for both periods: expected
volatility of 100 and 85.1 percent, risk-free interest rates of 5.0 and 5.45
percent, and expected lives of 2 years, for both periods. The compensation cost
disclosed above may not be representative of the effects on reported income in
future quarters, for example, because options vest over several years and
additional awards are made each year.

NOTE 9:  SUBSEQUENT EVENTS

         REPRICING OF WARRANTS. On September 20, 1999, the Company reduced the
exercise price on certain of its outstanding warrants by two-thirds. As a result
of the repricing, holders of the former Rally's warrants issued in the November
1996 rights offering will receive one new warrant with an exercise price of
$4.52 per share for each 6.03 former Rally's warrants they hold. The warrant
term was also extended one year to September 26, 2001. The Company is in the
process of applying to list these replacement warrants on the NASDAQ.

                                       13
<PAGE>

         The exercise prices of certain other Company warrants were similarly
reduced by two-thirds. The privately-held warrants issued in connection with the
Checkers senior debt restructuring in November 1996 were reduced from $9.00 to
$3.00 per share and the publicly-held warrants (trading symbol: CHKRW) issued to
stockholders in November 1996 were reduced from $16.50 to $5.50 per share. The
former Rally's warrants privately held by CKE Restaurants, Inc and Fidelity
National Financial, Inc. were not repriced. The closing price of the Company's
common stock on the NASDAQ on September 17, 1999, was $2.03 per share.

         RIGHTS OFFERING. The Company has announced that it intends to make a
rights offering to its stockholders. Pursuant to the offering, each stockholder
will receive one transferable right for approximately every 3.129 shares of
common stock held. Each right will entitle the holder to acquire one share of
common stock for a subscription price of $2.00. In addition, for every two
shares acquired upon exercise of the rights, the holder will also receive a
warrant to purchase an additional share of common stock upon payment of a $2.00
warrant price. The Company anticipates that the warrants will have a five-year
term and will be callable if the common stock trades at or above $5.00 for
thirty consecutive days. Assuming all rights are exercised, the Company will
issue 3,000,000 shares of its common stock and warrants to purchase an
additional 1,500,000 shares. The rights offering will be made only by means of a
prospectus meeting the requirements of the Securities Act of 1933. In connection
with the rights offering, stockholders who exercise their initial subscription
privilege will be permitted to subscribe for the right which remain
unsubscribed, if any, at the expiry date.

ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS

INTRODUCTION

         Checkers Drive-In Restaurants, Inc. commenced operations on August 1,
1987, to operate and franchise Checkers Double Drive-Thru restaurants. On August
9, 1999, Checkers Drive-In Restaurants, Inc. ("Checkers") and Rally's
Hamburgers, Inc. ("Rally's") completed a merger pursuant to which each
outstanding share of Rally's stock was exchanged for 1.99 shares of Checkers
stock and the approximately 19.1 million shares of Checkers common stock which
Rally's had owned was retired. Checkers and Rally's each received investment
bankers' opinions as to the fairness of the exchange rate used in the merger.
Immediately following the merger and a one-for-twelve reverse stock split, there
was approximately 9.4 million shares outstanding. The merger of Checkers with
Rally's was accounted for as a reverse acquisition as former shareholders of
Rally's owned a majority of the outstanding stock of Checkers subsequent to the
merger. Therefore, for accounting purposes, Rally's is deemed to have acquired
Checkers. All pre-merger financial information presented represents only the
financial results for Rally's. The 1999 financial information presented in the
Condensed Consolidated Statements of Operations and Comprehensive Income and the
Condensed Consolidated Statements of Cash Flows represents the results for
Rally's for the periods stated and include the financial results for Checkers
for the post-merger four week period ended September 6, 1999. The Condensed
Consolidated Balance Sheet as of September 6, 1999 represents the combined
balance sheet of the merged entity.

         At September 6, 1999, there were 465 Rally's restaurants operating in
18 different states and there were 469 Checkers restaurants operating in 22
different states, the District of Columbia, Puerto Rico and West Bank in the
Middle East. Of those restaurants, 463 were Company operated and 471 were
operated by franchisees, including 23 Company-owned restaurants in Western
markets which are operated as Rally's restaurants by CKE Restaurants, Inc.
("CKE"), a significant shareholder of the Company, under an operating agreement
which began in July, 1996. Two additional Company-owned stores covered by the
operating agreement have been converted to the Carl's Jr. format and are not
included in the above store count. The Company's ownership interest in the
Company-operated restaurants is in one of two forms: (i) the Company owns 100%
of the restaurant (as of September 6, 1999, there were 451 such restaurants) and
(ii) the Company owns a 10.55% to 65.83% interest in various partnerships which
own the restaurants (a "Joint Venture Restaurant"). As of September 6, 1999,
there were 12 such Joint Venture Restaurants whose operations are consolidated
in the financial statements of the Company.

         Effective November 30, 1997, Checkers Drive-In Restaurants, Inc and
Rally's Hamburgers, Inc. entered into a Management Services Agreement whereby
Checkers provided accounting, technology, and other functional and management
services to predominantly all of the operations of Rally's. Checkers received
fees from Rally's relative to the shared departmental costs times the respective
store ratio. Upon completion of the merger of Checkers and Rally's, this
Agreement was terminated effective August 9, 1999. During the three quarters
ended September 6, 1999 and the three quarters ended September 6, 1998, Checkers
charged Rally's $4.7 million and $3.5 million, respectively in accordance with
the Management Services Agreement. The increase in costs billed to Rally's was
primarily due to the transfer of various marketing and field management
personnel from Rally's to Checkers during the third quarter of 1998 and the
subsequent inclusion of the expenses for these personnel in the amounts billed
by Checkers to Rally's.

         Comparable store sales for the third quarter of 1999 decreased by 1.1%
for Rally's restaurants and decreased 0.5% for Checkers restaurants compared to
the same quarter of the prior year. On a year-to-date basis, comparable store
sales

                                       14
<PAGE>


are 0.4% below the prior year for the Rally's restaurants and 6.9% below
the prior year for the Checkers units. During the quarter, each concept
initially promoted the Double Cheese Double hamburger for $0.99. The featured
event of the quarter was a joint sweepstakes promotional effort between the two
concepts offering instant win prizes and the opportunity to participate in a
drawing for a car. During the quarter, a test to evaluate the operational issues
and customer acceptance of a limited breakfast menu was conducted. Subsequent to
the end of the third quarter, this test was discontinued. Checkers also
discontinued the test of a dual branding effort with Green Burrito during the
quarter.

         Since the third quarter of fiscal 1998, the Company, along with its
franchisees, experienced a net decrease of 31 operating restaurants. In the
third quarter of fiscal 1999, the Company closed one restaurant and franchisees
opened four restaurants and closed five restaurants.

         The Company receives revenues from restaurant sales, franchise fees,
royalties and sales of fully-equipped manufactured modular restaurant packages.
The Company's revenue also includes payments resulting from an operating
agreement with CKE, referred to as Owner fee income in the accompanying
condensed consolidated financial statements. Restaurant food and paper cost,
labor costs, occupancy expense, other operating expenses, depreciation and
amortization, and advertising and promotion expenses relate directly to
Company-owned restaurants. Cost of modular restaurant packages relates to all
restaurant equipment and building materials, labor and other direct and indirect
costs of production. Other expenses, such as depreciation and amortization, and
general and administrative expenses, relate both to Company operated restaurant
operations and modular restaurant packages revenues as well as the Company's
franchise sales and support functions. Owner expenses relate to CKE-operated
restaurants and consist primarily of depreciation and amortization. The
Company's revenues and expenses are affected by the number and timing of
additional restaurant openings and the sales volumes of both existing and new
restaurants. Modular restaurant packages revenues are directly affected by the
number of new franchise restaurant openings and the number of new modular
restaurant packages produced or used modular restaurant packages refurbished for
sale in connection with those openings.



                                       15
<PAGE>

RESULTS OF OPERATIONS

         The following table sets forth the percentage relationship to total
revenues of the listed items included in the Consolidated Statements of
Operations. Certain items are shown as a percentage of restaurant sales and
owner fee income. The table also sets forth certain selected restaurant
operating data.

<TABLE>
<CAPTION>
                                                  QUARTER ENDED     THREE QUARTERS ENDED
                                                   (UNAUDITED)           (UNAUDITED)
                                             --------------------------------------------
                                               SEPT. 6,   SEPT. 6,   SEPT. 6,    SEPT. 6,
                                                 1999       1998       1999       1998
                                             ----------- ---------- ----------   --------
<S>                                              <C>        <C>        <C>        <C>
REVENUES
    Restaurant sales                             96.0%      96.3%      96.3%      96.3%
    Franchise revenues and fees                   3.6%       3.2%       3.2%       3.2%
    Owner fee income                              0.4%       0.5%       0.5%       0.5%
                                             ----------- ---------- ----------   --------
        Total  revenues                         100.0%     100.0%     100.0%     100.0%

COSTS AND EXPENSES
    Restaurant food and paper costs (1)          31.2%      32.2%      30.8%      32.1%
    Restaurant labor costs (1)                   33.3%      30.9%      31.9%      31.1%
    Restaurant occupancy expense (1)              6.2%       5.0%       5.8%       5.0%
    Restaurant depreciation and
       amortization (1)                           5.0%       4.9%       5.0%       5.1%
    Other restaurant operating expense (1)        9.4%       8.9%       9.3%       8.8%
    Advertising expense (1)                       5.2%       7.7%       5.9%       7.1%
    Owner depreciation (2)                      217.3%      92.9%     216.6%      88.2%
    Other depreciation and amortization           1.8%       1.6%       1.7%       1.7%
    General and administrative expense            8.9%       8.6%       9.0%       9.1%
    Loss provisions                               0.0%       0.0%       0.0%       0.9%
                                             ----------- ---------- ----------   --------
        Operating income                          1.8%       3.0%       2.8%       1.9%
                                             ----------- ---------- ----------   --------

OTHER INCOME (EXPENSE)
    Interest income                               0.4%       0.4%       0.4%       0.3%
    Gains on bond repurchases                     0.2%       0.0%       0.5%       0.0%
    Loss on investment in affiliate              (1.1)%     (1.5)%     (1.2)%     (0.8)%
    Interest expense                             (3.9)%     (4.5)%     (4.4)%     (4.7)%
    Interest - loan cost amortization            (0.2)%     (0.3)%     (0.3)%     (0.3)%
    Minority interests in losses                  0.0%       0.0%       0.0%       0.0%
                                             ----------- ---------- ----------   --------
   Loss before income tax expense                (2.9)%     (2.8)%     (2.2)%     (3.6)%
   Income tax expense                             0.1%       0.1%       0.1%       0.0%
                                             ----------- ---------- ----------   --------
        Net loss                                 (3.0)%     (2.9)%     (2.3)%     (3.6)%
                                             =========== ========== ==========   ========
</TABLE>

(1) As a percent of restaurant sales.
(2) As a percent of owner fee income.

                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                        QUARTER ENDED           THREE QUARTERS ENDED
                                                         (UNAUDITED)                 (UNAUDITED)
                                                    ----------------------      ----------------------
                                                    SEPT. 6,      SEPT. 6,      SEPT. 6,      SEPT. 6,
                                                      1999          1998          1999          1998
                                                    --------      --------      --------      --------
<S>                                                 <C>           <C>           <C>           <C>
Operating data:
    System - wide restaurant sales (in 000's):
      Company - operated                            $ 43,782      $ 33,505      $107,980      $ 97,640
      Franchised                                      46,972        36,181       111,634       104,863
                                                    --------      --------      --------      --------
            Total                                   $ 90,754      $ 69,686      $219,614      $202,503
                                                    ========      ========      ========      ========
Number of restaurants (3)
      Company - operated                                 463           226
      Franchised                                         471           256
                                                    --------      --------
           Total                                         934           482
                                                    ========      ========
</TABLE>

(3)  Number of restaurants open at end of period. 1998 amounts represent
     Rally's only.


COMPARISON OF HISTORICAL RESULTS - QUARTER ENDED SEPTEMBER 6, 1999 AND
QUARTER ENDED SEPTEMBER 6, 1998

            REVENUES. Total revenues were $45.6 million for the quarter ended
September 6, 1999, compared to $34.8 million for the quarter ended September 6,
1998. Of this difference, $10.5 million is attributable to the operation of the
Checkers restaurants for the four weeks subsequent to the merger. Restaurant
sales for comparable Rally's restaurants decreased 1.1% compared to the quarter
ended September 6, 1998. Although only four weeks of sales of Checkers are
included in the amounts reported for the quarter, comparable Checkers restaurant
sales decreased 0.5% compared to the same twelve weeks of the prior year.
Comparable restaurants are those open continuously during both reporting
periods.

            Franchise revenues and fees were $1.7 million for the quarter ended
September 6, 1999, compared to $1.1 million for the quarter ended September 6,
1998. Of this increase, $555,000 is attributable to Checkers franchisee fees and
royalties from the operations of existing Checkers franchisees for the four
weeks subsequent to the merger.

            COSTS AND EXPENSES. Restaurant food and paper costs totalled $13.7
million or 31.2% of restaurant sales for the quarter ended September 6, 1999,
compared to $10.8 million or 32.2% of restaurant sales for the quarter ended
September 6, 1998. Of this difference, $3.3 million is attributable to the
operation of the Checkers restaurants for the four weeks subsequent to the
merger. The decrease in these costs as a percentage of restaurant sales was due
to the introduction of the two-patty platform in the Rally's system that
utilizes a smaller hamburger patty for the value conscious customer and a
limited price increase on various menu items in prior quarters.

            Restaurant labor costs, which includes restaurant employees'
salaries, wages, benefits and related taxes, totalled $14.6 million or 33.3% of
restaurant sales for the quarter ended September 6, 1999, compared to $10.3
million or 30.9% of restaurant sales for the quarter ended September 6, 1998. Of
this difference, $3.7 million is attributable to the operation of the Checkers
restaurants for the four weeks subsequent to the merger. The increase in
restaurant labor costs as a percentage of restaurant sales was due to the impact
of operating at lower sales levels, and a competitive labor market for both
chains.

            Restaurant occupancy expense, which includes rent, property taxes,
licenses and insurance, totalled $2.7 million or 6.2% of restaurant sales for
the quarter ended September 6, 1999 compared to $1.7 million or 5.0% of
restaurant sales for the quarter ended September 6, 1998. Of this difference,
$928,000 is attributable to the operation of the Checkers restaurants for the
four weeks subsequent to the merger. The increase as a percent of restaurant
sales is due in part to the decrease in restaurant sales for the current quarter
versus the comparable quarter of the prior year. In addition, a greater
percentage of Checkers restaurants are leased rather than owned.

            Restaurant depreciation and amortization totalled $2.2 million or
5.0% of restaurant sales for the quarter ended September 6, 1999 compared to
$1.6 million, or 4.9% for the quarter ended September 6, 1998. Of this
difference, $556,000 is attributable to the operation of the Checkers
restaurants for the four weeks subsequent to the merger.

            Other restaurant operating expenses includes all other restaurant
level operating expenses other than food and paper costs, labor and benefits,
rent and other occupancy costs and specifically includes utilities, maintenance
and other costs. These expenses totalled $4.1 million or 9.4% of restaurant
sales for the quarter ended September 6, 1999, compared to $3.0 million or


                                       17
<PAGE>

8.9% of restaurant sales for the quarter ended September 6, 1998. Of this
difference, $1.1 million is attributable to the operation of the Checkers
restaurants for the four weeks subsequent to the merger.

            Advertising expense decreased to $2.3 million or 5.2% of restaurant
sales for the quarter ended September 6, 1999 from $2.6 million or 7.7% of
restaurant sales for the quarter ended September 6, 1998, despite $573,000 of
expense attributable to the operation of Checkers restaurants for the four weeks
subsequent to the merger. The decrease is due to reduced television spending and
agency fees in the current quarter compared to the comparable quarter in the
prior year, as well as increased efficiencies resulting from combining the
Rally's and Checkers marketing efforts.

            Owner depreciation of $352,000 for the quarter ended September 6,
1999 represents the Company's segregated ownership cost related to the 23
Rally's restaurants and two other units operated by CKE. These expenses consist
primarily of depreciation and amortization associated with these properties
which have increased by $194,000 from the quarter ended September 6, 1998 due to
a reduction in the estimated lives of the underlying assets.

            Other depreciation and amortization was $814,000 or 1.8% of total
revenues for the quarter ended September 6, 1999 compared to $559,000 or 1.6% of
total revenue for the quarter ender September 6, 1998. Of this increase, $83,000
is additional depreciation attributable to Checkers for the 4 weeks subsequent
to the merger and $109,000 represents amortization of goodwill recorded in
conjunction with the merger.

            General and administrative expenses were $4.0 million or 8.9% of
total revenues, for the quarter ended September 6, 1999, compared to $3.0
million or 8.6% of total revenues for the quarter ended September 6, 1998. The
majority of this increase is attributable to Checkers general and administrative
expenses for the four weeks subsequent to the merger.

            Interest expense other than loan cost and bond discount amortization
was $1.8 million or 3.9% of total revenues for the quarter ended September 6,
1999, compared to $1.6 million or 4.5% of total revenues for the quarter ended
September 6, 1998. The increase is attributable to $282,000 of interest related
to Checkers debt for the four week period subsequent to merger, offset somewhat
by the effect of a lower weighted average of Rally's debt outstanding during the
period.

            The loss on investment in affiliate of $495,000 represents Rally's
share of the losses of Checkers for the eight weeks prior to the merger in the
quarter ended September 6, 1999 ($398,000) and the amortization of related
goodwill ($97,000). The loss of $528,000 for the quarter ended September 6, 1998
represented twelve weeks of activity.

            INCOME TAX. The Company's net tax provision for both periods
represents estimated state income taxes expected to be payable for both years.
The Company has continued not recording a net tax benefit for the current book
losses due to uncertainty of their ultimate realization.

COMPARISON OF HISTORICAL RESULTS - THREE QUARTERS ENDED SEPTEMBER 6, 1999 AND
THREE QUARTERS ENDED SEPTEMBER 6, 1998

            REVENUES. Total revenues were $112.1 million for the three quarters
ended September 6, 1999, compared to $101.4 million for the three quarters ended
September 6, 1998. Of this difference, $10.5 million is attributable to the
operation of the Checkers restaurants for the four weeks subsequent to the
merger. Restaurant sales for comparable Rally's restaurants decreased 0.4%
compared to three quarters ended September 6, 1998. Although only four weeks of
sales of Checkers are included in the amounts reported, comparable Checkers
restaurant sales decreased 6.9% compared to the same 36 weeks of the prior year.
Comparable restaurants are those open continuously during both reporting
periods.

            Franchise revenues and fees were $3.6 million for the three quarters
ended September 6, 1999 compared to $3.3 million for the three quarters ended
September 6, 1998. This increase is attributable to Checkers franchise fees and
royalties from the operations of existing Checkers franchisees ($555,000) for
the four weeks subsequent to the merger, offset by the effects of a net decrease
of 18 Rally's franchised restaurants since September 6, 1998.

            COSTS AND EXPENSES. Restaurant food and paper costs totalled $33.3
million or 30.8% of restaurant sales for the three quarters ended September 6,
1999, compared to $31.3 million or 32.1% of restaurant sales for the three
quarters ended September 6, 1998. Of this difference, $3.3 million is
attributable to the operation of the Checkers restaurants for the four weeks
subsequent to the merger. The decrease in these costs as a percentage of
restaurant sales was due to the introduction of the two-patty platform in the
Rally's system that utilizes a smaller hamburger patty for the value conscious
customer and a limited price increase on various menu items.

            Restaurant labor costs, which includes restaurant employees'
salaries, wages, benefits and related taxes, totalled $34.5 million or 31.9% of
restaurant sales for the three quarters ended September 6, 1999, compared to
$30.4 million or 31.1% of restaurant sales for the three quarters ended
September 6, 1998. Of this difference, $3.7 million is attributable to the

                                       18
<PAGE>

operation of the Checkers restaurants for the four weeks subsequent to the
merger. The increase in restaurant labor costs as a percentage of restaurant
sales was due to the impact of operating at lower sales levels and a competitive
labor market.

            Restaurant occupancy expense, which includes rent, property taxes,
licenses and insurance, totalled $6.3 million or 5.8% of restaurant sales for
the three quarters ended September 6, 1999 compared to $4.9 million or 5.0% of
restaurant sales for the three quarters ended September 6, 1998. Of this
difference, $928,000 is attributable to the operation of the Checkers
restaurants for the four weeks subsequent to the merger. This increase in
restaurant occupancy costs as a percentage of restaurant sales was primarily due
to the effect of certain fixed costs while operating at a lower sales level.

            Restaurant depreciation and amortization increased to $5.4 million
or 5.0% of net restaurant sales for the three quarters ended September 6, 1999,
as compared to $5.0 million or 5.1% of net restaurant sales for the three
quarters ended September 6, 1998. Of this difference, $556,000 is attributable
to the operation of the Checkers restaurants for the four weeks subsequent to
the merger.

            Other restaurant operating expenses includes all other restaurant
level operating expenses other than food and paper costs, labor and benefits,
rent and other occupancy costs and specifically includes utilities, maintenance
and other costs. These expenses totaled $10.0 million or 9.3% of restaurant
sales for the three quarters ended September 6, 1999, compared to $8.6 million
or 8.8% of restaurant sales for the three quarters ended September 6, 1998. Of
this difference, $1.1 million is attributable to the operation of the Checkers
restaurants for the four weeks subsequent to the merger. The increase in these
expenses for the three quarters ended September 6, 1999 as a percentage of
restaurant sales was primarily related to an increase in repair and maintenance
costs and the decrease in average restaurant sales relative to the fixed and
semi-variable nature of these expenses.

            Advertising expense decreased to $6.4 million, or 5.9% of restaurant
sales for the three quarters ended September 6, 1999 from $7.0 million, or 7.1%
of restaurant sales for the three quarters ended September 6, 1998, despite
$573,000 of expense attributable to the operation of the Checkers restaurants
for the four weeks subsequent to the merger. The decrease is due to reduced
television spending and agency fees in the current year compared to the
comparable period in the prior year, as well as increased efficiencies resulting
from combining the Rally's and Checkers marketing efforts.

            Owner depreciation of $1.1 million for the three quarters ended
September 6, 1999 represents the Company's segregated ownership cost related to
the 23 Rally's restaurants and two other units operated by CKE. These expenses
consist primarily of depreciation and amortization associated with these
properties which have increased by $618,000 from the three quarters ended
September 6, 1998 due to a reduction in the estimated lives of the underlying
assets.

            Other depreciation and amortization was $2.0 million or 1.7% of
total revenues for the three quarters ended September 6, 1999, compared to $1.7
million or 1.7% of total revenues for the quarter ended September 6, 1998. Of
this increase, $83,000 is additional depreciation attributable to Checkers for
the four weeks subsequent to the merger and $109,000 represents amortization of
goodwill recorded in conjunction with the merger.

            General and administrative expenses were $10.1 million or 9.0% of
total revenues for the three quarters ended September 6, 1999, compared to $9.3
million or 9.1% of total revenues for the three quarters ended September 6,
1998. The majority of this increase is attributable to Checkers general and
administrative expenses for the four weeks subsequent to the merger.

            LOSS PROVISIONS. During the first three quarters of 1998, the
Company recorded provisions totalling $885,000 to reserve for costs associated
with the closure of seven restaurants and the relocation of one restaurant. No
such provisions have been made in 1999.

            Interest expense other than loan cost and bond discount amortization
was $5.0 million or 4.4% of total revenues for the three quarters ended
September 6, 1999, compared to $4.8 million or 4.7% of total revenues for the
three quarters ended September 6, 1998. The increase is attributable to $282,000
of interest related to Checkers debt for the four week period subsequent to
merger, offset somewhat by the effect of a lower weighted average of Rally's
debt outstanding during the period.

            The loss on investment in affiliate of $1.4 million for the three
quarters ended September 6, 1999 represents Rally's share of the loss of
Checkers and the amortization of related goodwill for the 32 weeks prior to the
merger. The loss of $768,000 for the three quarters ended September 6, 1998
represents 36 weeks of activity.


                                       19
<PAGE>

            INCOME TAX. The Company's net tax provision for each period
presented represents estimated state income taxes expected to be payable for
both years. The Company has continued not recording a net tax benefit for the
current book losses due to uncertainty of their ultimate realization.

LIQUIDITY AND CAPITAL RESOURCES

            The Company has a working capital deficit of $82.6 million at
September 6, 1999. This significant deficit is due to the short term maturity of
the amounts due pursuant to both the Restated Credit Agreement and the 9 7/8%
Senior Notes. Excluding the current maturity of long-term debt, the Company will
continue to have a working capital deficit as approximately 87.6% of it's assets
are long-term (primarily property, equipment, and intangibles), and primarily
all liabilities, including trade payables, accrued expenses, and property and
equipment payables, are current liabilities of the Company.

            The 9 7/8% Senior Notes were sold by Rally's in 1993 and mature on
June 15, 2000. Prior to the merger with Checkers, Rally's completed the required
mandatory sinking fund payment due June 15, 1999 calculated to retire 33 1/3% in
aggregate original principal amount of the senior notes during the third quarter
of 1998. During 1998 and prior to December 18, 1998, Rally's repurchased on the
open market approximately $1.7 million face value of its senior notes at an
average price of $887.90 per $1,000 principal amount. Also prior to the merger
with Checkers, Rally's entered into a $4.3 million mortgage transaction with
FFCA Acquisition Corporation pursuant to which eight fee-owned properties were
mortgaged on December 18, 1998. The terms of the transaction include a stated
interest rate of 9.5% on the unpaid balance over a 20-year term with monthly
payments totaling approximately $40,000. Net proceeds were utilized to reduce
the Senior Notes. The remaining principal amount was $51.7 million on September
6, 1999.

            A significant portion ($17.4 million) of the Company's debt relates
to the Company's Restated Credit Agreement as described below. In October 1999,
a $2.5 million payment was made to the lender group, reducing the outstanding
balance to $14.9 million.

            The Company is actively involved in a debt reduction and refinancing
strategy that includes sale-leaseback transactions of approximately $3.6 million
and a potential rights offering to existing shareholders with expected net
proceeds of approximately $5.7 million. The Company believes the majority of the
debt reduction will be accomplished by the sale of Company-owned stores to new
or existing franchisees in transactions that provide immediate funds to reduce
debt and also provide a continued source of income through future royalties. As
of October 11, 1999, the Company had entered into non-binding letters of intent
to sell 160 restaurants in eight markets which transactions are expected to
generate after-tax net proceeds of $36.5 million. The Company intends to sell
additional markets to reduce its debt to a level where it can be refinanced at
market terms. The Company is also in various stages of negotiation with parties
that have expressed interest in purchasing other markets. Although the Company
believes that it's debt reduction and refinancing strategy will be successful,
there can be no assurance that the Company will be able to satisfy the entire
principle balances of the Restated Credit Agreement due April 30, 2000 and
Senior Notes due June 15, 2000.

            Cash and cash equivalents increased approximately $7.1 million to
$11.7 million during the three quarters ended September 6, 1999. Cash flow from
operating activities was $12.2 million, compared to $3.8 million during the same
period last year. The increase is largely attributable to a $6.3 million
increase in the balances of accounts payable and accrued liabilities due to the
timing of payments in the current year.

            Capital expenditures of $1.9 million for the three quarters ended
September 6, 1999, were funded primarily through cash flow from operations.
Approximately $358,000 of these expenditures were for the construction or
conversion of new stores. Additionally $237,000 was spent to add dining rooms to
test units. Remaining capital expenditures, approximately $1.3 million, were
primarily for the purchase and installation of replacement restaurant equipment
and expansion and upgrades of computer systems.

            Financing activities for the three quarters ended September 6, 1999
consisted primarily of the principal payments on long term debt and lease
obligations of $1.5 million and principal payments and repurchases of Senior
Notes of $3.6 million, and were funded by cash flow from operations and proceeds
of the FFCA mortgage transaction.

            On November 14, 1996, Checkers debt under its loan agreement and
credit line was acquired from its previous lenders by a group of entities and
individuals, most of whom are engaged in the quick-service restaurant business.
This investor group (the "CKE Group") was led by CKE Restaurants, Inc. ("CKE")
the parent of Carl Karcher Enterprises, Inc., Hardee's Food System, Inc., Taco
Bueno Restaurants, Inc., and Summit Family Restaurants, Inc. Also participating
were most members of the former lender group, Fidelity National Financial, Inc.
("Fidelity") and KCC Delaware Company, a wholly-owned subsidiary of GIANT GROUP,
LTD. ("GIANT"). CKE, GIANT and an affiliate of Fidelity (Santa Barbara
Restaurant Group, Inc.) are the largest stockholders of the Company.


                                       20
<PAGE>

            On November 22, 1996, Checkers and the CKE Group executed an Amended
and Restated Credit Agreement (the "Restated Credit Agreement") thereby
completing a restructuring of the debt under the Loan Agreement. The Restated
Credit Agreement consolidated all of the debt under the Loan Agreement and the
Credit Line into a single obligation. At the time of the restructuring, the
outstanding principal balance under the Loan Agreement and the Credit Line was
$35.8 million. Pursuant to the terms of the Restated Credit Agreement, the term
of the debt was extended by one (1) year until July 31, 1999, and the interest
rate on the indebtedness was reduced to a fixed rate of 13%. In addition, all
principal payments were deferred until May 19, 1997, and the CKE Group agreed to
eliminate certain financial covenants, to relax others and to eliminate
approximately $4.3 million in restructuring fees and charges. The Restated
Credit Agreement also provided that certain members of the CKE Group agreed to
provide to the Company a short term revolving line of credit of up to $2.5
million, also at a fixed interest rate of 13% (the "Secondary Credit Line"). In
consideration for the restructuring, the Restated Credit Agreement required the
Company to issue to the members of the CKE Group warrants to purchase an
aggregate of 20 million shares of the Company's common stock at an exercise
price of $.75 per share, which was the approximate market price of the common
stock prior to the announcement of the debt transfer. Due to the one-for-twelve
reverse stock split in August 1999 and a repricing in September 1999, it now
requires the exercise of twelve warrants and $3.00 to acquire one share of
stock. Since November 22, 1996, the Company has reduced the principal balance
under the Restated Credit Agreement by $20.9 million and has repaid the
Secondary Credit Line in full. A portion of the funds utilized to make these
principal reduction payments were obtained by Checkers from the sale of certain
closed restaurant sites to third parties. Additionally, Checkers utilized $10.5
million of the proceeds from the February 21, 1997, private placement and $8.0
million of the proceeds of a $10.0 million mortgage financing transaction
completed on December 18, 1998 for these principal reductions, both of which are
described later in this section. Pursuant to the Restated Credit Agreement, the
prepayments of principal made in 1996 and early in 1997 relieved the Company of
the requirement to make any of the regularly scheduled principal payments under
the Restated Credit Agreement which would have otherwise become due in fiscal
year 1998 through maturity. The Amended and Restated Credit Agreement provides
however, that 50% of any future asset sales must be utilized to prepay
principal.

            During March and April 1999, Santa Barbara Restaurant Group, Inc.
("SBRG"), a Company which owns 4.3% of the Company's outstanding common stock,
acquired approximately $4.9 million of debt held by three members of the lender
group. The terms associated with the SBRG debt are identical to terms that other
participants of the lender group have pursuant to the Restated Credit Agreement.
On March 24, 1999, SBRG and the other remaining members of the lender group
agreed to an extension of the maturity date to April 30, 2000. As of September
6, 1999, Fidelity National Financial, Inc. owned approximately 29% of the
outstanding common stock of SBRG.

            The Restated Credit Agreement with the CKE Group contains
restrictive covenants which include the consolidated EBITDA covenant as defined
in the Agreement. Immediately preceding the merger on August 9, 1999 and during
a majority of 1998, the Company was in violation of the consolidated EBITDA
covenant. The Company received a waiver for periods 11 through 13 of fiscal
1998, and for all periods remaining through August 9, 1999, the effective date
of the merger with Rally's. The addition of the Rally's historical results has
enabled the Company to maintain compliance with the debt covenant.

            The Company is actively marketing the assets included in the caption
"Assets held for sale" in the accompanying consolidated balance sheet and
expects realization in cash over the next 12 months, although actual timing of
such cash flows cannot be predicted. The assets contained in this caption are
recorded at management's current estimate of fair market value less costs to
sell. There can be no assurances that these values will ultimately be realized.

            Rally's entered into a ten-year operating agreement with Carl
Karcher Enterprises, Inc., a subsidiary of CKE Restaurants, Inc. (collectively
referred to as "CKE") on July 1, 1996. Pursuant to the agreement, 25 (2 of which
have been converted to a Carl's Jr. format) Company-owned restaurants located in
California and Arizona are being operated by CKE. The Company retains ownership
in the restaurants and receives from CKE a percentage of gross revenues referred
to in the financial statements as owner fee income. This income is offset by the
Company's segregated ownership costs related to these units, referred to as
owner depreciation in the financial statements and consists primarily of noncash
expenses of depreciation and amortization. The agreement has improved cash flow,
generating approximately $714,000 in 1998 and $488,000 in the three quarters
ended September 6, 1999.

            As adjusted for the one-for-twelve reverse split, on February 21,
1997, Checkers completed a private placement (the "Private Placement") of
748,454 shares of common stock, $.001 par value, and 87,719 shares of Series A
preferred stock, $.001 par value (the "Preferred Stock"). CKE Restaurants, Inc.
purchased 513,525 of the Company's common stock and 61,623 of the Preferred
Stock and other qualified investors, including other members of the lender group
under the Restated Credit Agreement and Raymond James and Associates, Inc., also
participated in the Private Placement. Checkers received approximately $19.5
million in net proceeds after $500,000 of issuance costs from the Private
Placement. The Company used $8 million of the Private Placement proceeds to
reduce the principal balance due under the Restated Credit Agreement; $2.5
million was utilized to repay the Secondary Credit Line; $2.3 million was
utilized to pay outstanding balances to various key food and paper distributors;
and the remaining amount was used primarily to pay down outstanding balances due
certain other vendors. The reduction of the debt under the Restated Credit
Agreement and the Secondary Credit Line, both of



                                       21
<PAGE>

which carried a 13% interest rate reduced interest payments by more than $1.3
million on an annualized basis. Raymond James and Associates, Inc. received
209,524 shares of the common stock for services related to the Private
Placement. Under the purchase price protection provisions of these 209,524
shares, Raymond James and Associates, Inc. was paid $170,000 as of December 28,
1998 and will be paid a remaining total of approximately $252,000 during 1999.
On August 6, 1997, the 87,719 shares of preferred stock were converted into
730,992 shares of the Company's common stock valued at $10 million. In
accordance with the agreement underlying the Private Placement (the "Private
Placement Agreement"), the Company also issued 50,877 shares of common stock as
a dividend pursuant to the liquidation preference provisions of the Private
Placement Agreement, valued at $696,000 to the holders of the preferred stock
issued in the Private Placement.

             On December 1, 1998, Checkers entered into two lease agreements,
which have been recorded as obligations under capital lease, with Granite
Financial, Inc. "Granite" (a wholly owned subsidiary of Fidelity), whereby
Checkers leased $659,000 of security equipment for its restaurants in the
aggregate. The first lease agreement is payable monthly at approximately $13,000
including effective interest at 13.08%. The second lease is payable at
approximately $9,000, including effective interest at 10.90%. Both of these
leases have terms of three years. During April and June of 1999, Checkers
entered into two additional capital leases with Granite, whereby Checkers leased
$554,000 of security equipment. Checkers is required to make additional monthly
payments of approximately $11,000 and $8,000 at effective interest rates of
13.82% and 13.85%, respectively, under these leases. Pursuant to the merger, the
Company also assumed liability for two lease agreements with Granite that were
entered into by Rally's on December 1, 1998 and are also recorded as capital
lease obligations. Pursuant to these leases, Rally's had also leased security
equipment for its restaurants valued at $627,000 in the aggregate. The first
lease agreement is payable monthly at $9,689, including effective interest at
11.35%. The second lease is payable monthly at $11,097, including effective
interest at 12.39% and both have terms of three years.

            On December 18, 1998, Checkers completed a $10.0 million mortgage
financing transaction with FFCA Acquisition Corporation (FFCA) collaterized by
24 fee-owned properties. The terms of the transaction include a stated interest
rate of 9.5% on the unpaid balance over a 20 year term. The net proceeds of the
mortgage transaction were approximately $9.6 million of which $8.0 million was
utilized to reduce the amount outstanding under the Restated Credit Agreement
and approximately $612,000 was used to retire other debt associated with the
collateral upon closing. Approximately $1.0 million was retained for operational
initiatives of the Company, including but not limited to new menu boards. As
described earlier in this section, Rally's completed a $4.3 million mortgage
transaction with FFCA on the same day and terms, the net proceeds of which were
utilized to repurchase senior notes on the open market.

YEAR 2000

            The Year 2000 issue arose because many computer programs use only
the last two digits to refer to a year. Therefore, these computer programs do
not properly recognize a year that begins with "20" instead of "19". The Company
has completed an assessment of all known internal information technology systems
to document its state of readiness.

            The Company utilizes accounting software packages such as Lawson
(general ledger/accounts payable) and Cyborg (payroll) that require periodic
upgrades to benefit from the latest modifications to the programs. Typically,
all releases of such upgrades must be implemented, eliminating a Company's
ability to move directly to the most recent release. During 1998, the Company
successfully implemented all required releases of both Lawson and Cyborg that
preceded the Year 2000 compliant release. The final Lawson upgrade was completed
during the third quarter of 1999 and is now Year 2000 compliant. The consulting,
and implementation required for the Cyborg upgrade was completed in October
1999. The cost of these upgrades to the Company was approximately $175,000. The
upgrade of corporate office systems is approximately 95% complete and should be
finalized by November 1999. Costs of replacing certain desktop computers and
other required modifications at the corporate office are not expected to exceed
$75,000.

            The Company has assessed the computer systems utilized at the
Checkers restaurants and determined such systems to be 100% Year 2000 compliant.
While the cash registers that are used by Rally's for each transaction are Year
2000 compliant, the back-office computer and related software was not. The
back-office computer is utilized for capturing and controlling such items as
payroll and food cost and is required to sustain communication of this and other
data to the corporate office. New computer systems were purchased for the
Rally's restaurants and the software currently utilized by the Checkers
restaurants is being installed. Completion of the rollout is expected by October
1999. Costs of replacing the Rally's computers and changing the software are not
expected to exceed $500,000.

            The Company has made a significant effort to identify third parties
that must be Year 2000 compliant to ensure the continued success of our
operations. Letters requesting written verification of compliance were sent to
companies that provide financial services, utilities, inventory preparation and
distribution and other key services. The Company has not been notified of any
anticipated Year 2000 related failures by these third parties but it can not be
assured that all such entities will be operating on January 1, 2000. The
distribution centers that deliver products to the restaurants maintain an
adequate inventory to supply items for approximately three weeks. If suppliers
are unable to deliver product to the distribution centers


                                       22
<PAGE>

due to Year 2000 or other plant malfunctions, alternative suppliers are
currently identified that could deliver product that matches the Company's
specifications. The Company has obtained verification of Year 2000 compliance
from its primary distributor. If documentation of Year 2000 compliance is not
received from financial institutions by November 1, 1999, the Company will
transfer its banking relationships to other banks at an incremental cost not
expected to exceed $100,000. No contingency plans are available if the utility
services for the restaurants are interrupted due to Year 2000 failures.

            Although the Company's systems are not currently fully Year 2000
compliant, management feels that the Company's risk in this area is minimal.

ITEM 3      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

            None.

PART II. OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

            Except as described below, the Company is not a party to any
material litigation and is not aware of any threatened material litigation:

            LITIGATION - JONATHAN MITTMAN ET AL. V. RALLY'S HAMBURGERS, INC., ET
AL. (Case NO. C-94-0039-L-CS). In January and February 1994, two putative class
action lawsuits were filed, purportedly on behalf of the stockholders of
Rally's, in the United States District Court for the Western District of
Kentucky, Louisville division, against Rally's, Burt Sugarman and GIANT and
certain of Rally's former officers and directors and its auditors. The cases
were subsequently consolidated under the case name Jonathan Mittman et al vs.
Rally's Hamburgers, Inc., et al, case number C-94-0039-L (CS). The complaints
allege defendants violated the Securities Exchange Act of 1934, among other
claims, by issuing inaccurate public statements about Rally's in order to
arbitrarily inflate the price of its common stock. The plaintiffs seek
unspecified damages. On April 15, 1994, Rally's filed a motion to dismiss and a
motion to strike. On April 5, 1995, the Court struck certain provisions of the
complaint but otherwise denied Rally's motion to dismiss. In addition, the Court
denied plaintiffs' motion for class certification; the plaintiffs renewed this
motion, and despite opposition by the defendants, the Court granted such motion
for class certification on April 16, 1996, certifying a class from July 20, 1992
to September 29, 1993. In October 1995, the plaintiffs filed a motion to
disqualify Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP
("Christensen, Miller") as counsel for defendants based on a purported conflict
of interest allegedly arising from the representation of multiple defendants as
well as Ms. Glaser's position as both a former director of Rally's and a partner
in Christensen, Miller. Defendants filed an opposition to the motion, and the
motion to disqualify Christensen, Miller was denied. A settlement conference
occurred on December 7, 1998, but was unsuccessful. Fact discovery was completed
in August 1999. Expert discovery is scheduled to be completed in April 2000.
Management is unable to predict the outcome of this matter at the present time
or whether or not certain available insurance coverage's will apply. The
defendants deny all wrongdoing and intend to defend themselves vigorously in
this matter. Because these matters are in a preliminary stage, the Company is
unable to determine whether a resolution adverse to the Company will have a
material effect on its results of operations or financial condition.
Accordingly, no provisions for any liabilities that may result upon adjudication
have been made in the accompanying financial statements. An estimate of defense
costs reimbursable under the Company's directors' and officers' insurance is
included in "Other Assets" in the accompanying consolidated financial
statements.

            HARBOR FINANCE PARTNERS V. GIANT GROUP, LTD. ET al. (Civ. Act. No.
14834). In February 1996, Harbor Finance Partners ("Harbor") commenced a
derivative action, purportedly on behalf of Rally's against GIANT and certain of
Rally's officers and directors before the Delaware Chancery Court. Harbor named
Rally's as a nominal defendant. Harbor claims that the directors and officers of
both Rally's and GIANT, along with GIANT, breached their fiduciary duties to the
public shareholders of Rally's by causing Rally's to repurchase from GIANT
certain Rally's Senior Notes at an inflated price. Harbor seeks "millions of
dollars in damages", along with rescission of the repurchase transaction. In the
fall of 1996, all defendants moved to dismiss the action. The Chancery Court
conducted a hearing on November 26, 1996 and denied the motions to dismiss on
April 3, 1997. As a result of the merger of Checkers and Rally's, the plaintiffs
lost their standing to bring this action and it has been dismissed.

            GREENFELDER ET AL. V. WHITE, JR., ET AL. On August 10, 1995, a state
court Complaint was filed in the Circuit Court of the Sixth Judicial Circuit in
and for Pinellas County, Florida, Civil Division, entitled GAIL P. GREENFELDER
AND POWERS BURGERS, INC. V. JAMES F. WHITE, JR., CHECKERS DRIVE-IN RESTAURANTS,
INC., HERBERT G. BROWN, JAMES E. MATTEI, JARED D. BROWN, ROBERT G. BROWN AND
GEORGE W. COOK, Case No. 95-4644-CI-21 (hereinafter the "Power Burgers
Litigation"). The original Complaint alleged, generally, that certain officers
of the Company intentionally inflicted severe emotional distress upon Ms.
Greenfelder, who is the sole stockholder, President and Director of Powers
Burgers, Inc. (hereinafter "Powers Burgers") a Checkers franchisee.


                                       23
<PAGE>

The original Complaint further alleged that Ms. Greenfelder and Powers Burgers
were induced into entering into various agreements and personal guarantees with
the Company based upon misrepresentations by the Company and its officers and
that the Company violated provisions of Florida's Franchise Act and Florida's
Deceptive and Unfair Trade Practices Act. The original Complaint alleged that
the Company is liable for all damages caused to the Plaintiffs. The Plaintiffs
seek damages in an unspecified amount in excess of $2,500,000 in connection with
the claim of intentional infliction of emotional distress, $3,000,000 or the
return of all monies invested by the Plaintiffs in Checkers' franchises in
connection with the misrepresentation of claims, punitive damages, attorneys'
fees and such other relief as the court may deem appropriate. The Court has
granted, in whole or in part, three (3) Motions to Dismiss the Plaintiffs'
Complaint, as amended, including an Order entered on February 14, 1997, which
dismissed the Plaintiffs' claim of intentional infliction of emotional distress,
with prejudice, but granted the Plaintiffs leave to file an amended pleading
with respect to the remaining claims set forth in their Amended Complaint. A
third Amended Complaint has been filed and an Answer, Affirmative Defenses, and
a Counterclaim to recover unpaid royalties and advertising fund contributions
has been filed by the Company. In response to the Court's dismissal of certain
claims in the Power Burgers Litigation, on May 21, 1997, a companion action was
filed in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas
County, Florida, Civil Division, entitled GAIL P. GREENFELDER, POWERS BURGERS OF
AVON PARK, INC., AND POWER BURGERS OF SEBRING, INC. V. JAMES F. WHITE, JR.,
CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JARED D.
BROWN, ROBERT G. BROWN AND GEORGE W. COOK, Case No. 97-3565-CI, asserting, in
relevant part, the same causes of action as asserted in the Power Burgers
Litigation. An Answer, Affirmative Defenses, and a Counterclaim to recover
unpaid royalties and advertising fund contributions have been filed by the
Company. On February 4, 1998, the Company terminated Power Burgers, Inc.'s,
Power Burgers of Avon Park, Inc.'s and Power Burgers of Sebring, Inc.'s
franchise agreements and thereafter filed two Complaints in the United States
District Court for the Middle District of Florida, Tampa Division, styled
CHECKERS DRIVE-IN RESTAURANTS, INC. V. POWER BURGERS OF AVON PARK, INC., Case
No. 98-409-CIV-T-17A and CHECKERS DRIVE-IN RESTAURANTS, INC. V. POWERS BURGERS,
Inc, Case No. 98-410-CIV-T-26E. The Complaint seeks, INTER alia, a temporary and
permanent injunction enjoining Power Burgers, Inc. and Power Burgers of Avon
Park, Inc.'s continued use of Checkers' Marks and trade dress. A Motion to Stay
the foregoing actions pending a resolution of the lawsuits pending in the Sixth
Judicial Circuit in and for Pinellas County, Florida described above has been
granted by the United States District Court. The Company believes the lawsuits
initiated against the Company are without merit, and intends to continue to
defend them vigorously. No estimate of any possible loss or range of loss
resulting from the lawsuit can be made at this time.

            CHECKERS DRIVE-IN RESTAURANTS, INC. V. TAMPA CHECKMATE FOOD
SERVICES, INC., ET AL. On August 10, 1995, a state court Counterclaim and Third
Party Complaint was filed in the Circuit Court of the Thirteenth Judicial
Circuit in and for Hillsborough County, Florida, Civil Division, entitled TAMPA
CHECKMATE FOOD SERVICES, INC., CHECKMATE FOOD SERVICES, INC. AND ROBERT H. GAGNE
V. CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JAMES
F. WHITE, JR., JARED D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK, Case No.
95-3869. In the original action filed by the Company in July 1995, against Mr.
Gagne and Tampa Checkmate Food Services, Inc., (hereinafter "Tampa Checkmate") a
Company controlled by Mr. Gagne, the Company sought to collect on a promissory
note and foreclose on a mortgage securing the promissory note issued by Tampa
Checkmate and Mr. Gagne and obtain declaratory relief regarding the rights of
the respective parties under Tampa Checkmate's franchise agreement with the
Company. The Counterclaim, as amended, alleged violations of Florida's Franchise
Act, Florida's Deceptive and Unfair Trade Practices Act, and breaches of implied
duties of "good faith and fair dealings" in connection with a settlement
agreement and franchise agreement between various of the parties and sought a
judgment for damages in an unspecified amount, punitive damages, attorneys' fees
and such other relief as the court may deem appropriate.

            The case was tried before a jury as to certain claims and
counterclaims and before the court sitting with an "advisory" jury as to the
remaining counterclaims. At the conclusion of the Counterclaim Plaintiffs'
case-in-chief, the trial court entered an involuntary dismissal and a directed
verdict as to all counterclaims brought against Counterclaim Defendants Robert
G. Brown, George W. Cook, and Jared Brown. The trial court also entered an
involuntary dismissal and directed verdict as to as to certain counterclaims
brought against the Company, James E. Mattei, Herbert G. Brown, and James F.
White, Jr., but reserved ruling as to the Counterclaimants' cause of action for
fraudulent inducement, violation of violation of Section 817.416(2)(a)(1) of the
Florida Franchise Act, and violation of the Florida Deceptive and Unfair Trade
Practices Act. At the conclusion of the case, the jury returned a verdict in
favor of the Company, James E. Mattei, Herbert G. Brown, and James F. White, Jr.
as to all counterclaims brought by Checkmate Food Services, Inc. and as to
certain counterclaims brought by Robert H. Gagne. The jury also rendered certain
non-binding "advisory" verdicts in favor of Tampa Checkmate and Mr. Gagne
against the Company, Herbert G. Brown, and James F. White, Jr. relating to their
causes of action for fraudulent inducement and violation of Section
817.416(2)(a)(1) of the Florida Franchise Act and recommended that the court
assess damages in the total amount of $453,991.00. The matter is presently
before the court on the Company's, James E. Mattei's, Herbert G. Brown's, and
James F. White, Jr.'s Renewed Motion For Directed Verdict And/Or Involuntary
Dismissal and, in the event the Renewed Motion For Directed Verdict And/Or
Involuntary Dismissal is denied in whole or in part, the Court's ruling as to
the remaining counterclaims.

            TEX-CHEX, INC. ET AL V. CHECKERS DRIVE-IN RESTAURANTS, INC. ET. AL.
On February 4, 1997, a Petition was filed against the Company and two former
officers and directors of the Company in the District Court of Travis County,
Texas 98th Judicial District, ENTITLED TEX-CHEX, INC., BRIAN MOONEY, AND SILVIO
PICCINI V. CHECKERS DRIVE-IN RESTAURANTS, INC., JAMES MATTEI, AND HERBERT G.
BROWN and numbered as Case No. 97-01335 on the docket of said court. The
original Petition generally alleged


                                       24
<PAGE>

that Tex-Chex, Inc. and the individual Plaintiffs were induced into entering
into two franchise agreements and related personal guarantees with the Company
based on fraudulent misrepresentations and omissions made by the Company. On
October 2, 1998, the Plaintiffs filed an Amended Petition realleging the
fraudulent misrepresentations and omission claims set forth in the original
Petition and asserting additional causes of action for violation of Texas'
Deceptive Trade Practices Act and violation of Texas' Business Opportunity Act.
The Company believes the causes of action asserted in the amended Petition
against the Company and the individual defendants are without merit and intends
to defend them vigorously. The matter is in the pre-trial stages and no estimate
of any possible loss or range of loss resulting from the lawsuit can be made at
this time.

            CHECKERS DRIVE-IN RESTAURANTS, INC. V. INTERSTATE DOUBLE DRIVE-THRU,
INC. ET. AL. On May 9, 1998, a Counterclaim was filed against the Company and a
former officer and director of the Company, Herbert T. Brown, in the United
States District Court for the Middle District of Florida, Tampa Division,
entitled CHECKERS DRIVE-IN RESTAURANTS, INC. V. INTERSTATE DOUBLE DRIVE-THRU,
INC. AND JIMMIE V. GILES and numbered as Case No. 98-648-CIV-T-23B on the docket
of said court. The original Complaint filed by the Company seeks a temporary and
permanent injunction enjoining Interstate Double Drive-Thru, Inc. and Mr. Giles'
continued use of Checkers' Marks and trade dress notwithstanding the termination
of its Franchise Agreement and to collect unpaid royalty fees and advertising
fund contributions. The Court granted the Company's motion for a preliminary
injunction on July 16, 1998. The Counterclaim generally alleges that Interstate
Double Drive-Thru, Inc. and Mr. Giles were induced into entering a franchise
agreement and a personal guaranty, respectfully, with the Company based on
misrepresentations and omissions made by the Company. The Counterclaim asserts
claims for breach of contract, breach of the implied convenant of good faith and
fair dealing, violation of Florida's Deceptive Trade Practices Act, violation of
Florida's Franchise Act, violation of Mississippi's Franchise Act, fraudulent
concealment, fraudulent inducement, negligent misrepresentation and rescission.
The Company believes the causes of action asserted in the Counterclaim against
the Company and Mr. Brown are without merit and intends to defend them
vigorously. The matter is in the pre-trial stages and no estimate of any
possible loss or range of loss resulting from the lawsuit can be made at this
time.

            FIRST ALBANY CORP., AS CUSTODIAN FOR THE BENEFIT OF NATHAN SUCKMAN
V. CHECKERS DRIVE-IN RESTAURANTS, INC. ET al. Case No. 16667. This putative
class action was filed on September 29, 1998, in the Delaware Chancery Court in
and for New Castle County, Delaware by First Albany Corp., as custodian for the
benefit of Nathan Suckman, an alleged stockholder of 500 shares of the Company's
common stock. The complaint names the Company and certain of its current and
former officers and directors as defendants including William P. Foley, II,
James J. Gillespie, Harvey Fattig, Joseph N. Stein, Richard A. Peabody, James T.
Holder, Terry N. Christensen, Frederick E. Fisher, Clarence V. McKee, Burt
Sugarman, C. Thomas Thompson and Peter C. O'Hara. The Complaint also names
Rally's Hamburgers, Inc. ("Rally's") and GIANT GROUP, LTD. ("GIANT") as
defendants. The complaint arises out of the proposed merger announced on
September 28, 1998 between the Company, Rally's and GIANT (the "Proposed
Merger") and alleges generally, that certain of the defendants engaged in an
unlawful scheme and plan to permit Rally's to acquire the public shares of the
Company's stock in a "going-private" transaction for grossly inadequate
consideration and in breach of the defendants' fiduciary duties. The plaintiff
allegedly initiated the Complaint on behalf of all stockholders of the Company
as of September 28, 1998, and seeks INTER ALIA, certain declaratory and
injunctive relief against the consummation of the Proposed merger, or in the
event the Proposed Merger is consummated, recision of the Proposed Merger and
costs and disbursements incurred in connection with bringing the action,
including attorney's fees, and such other relief as the Court may deem just and
proper. In view of a decision by the Company, GIANT and Rally's not to implement
the transaction that had been announced on September 28, 1998, plaintiffs have
agreed to provide the Company and all other defendants with an open extension of
time to respond to the compliant. Plaintiffs have indicated that they will
likely file an amended complaint in the event of the consummation of a merger
between the Company and Rally's. The Company believes the lawsuit is without
merit and intends to defend it vigorously should plaintiffs seek to renew the
lawsuit. No estimate of possible loss or range of loss resulting from the
lawsuit can be made at this time.

            DAVID J. STEINBERG AND CHAILE B. STEINBERG, INDIVIDUALLY AND ON
BEHALF OF THOSE SIMILARLY SITUATED V. CHECKERS DRIVE-IN RESTAURANTS, INC., et
al. Case No. 16680. This putative class action was filed on October 2, 1998, in
the Delaware Chancery Court in and for New Castle County, Delaware by David J.
Steinberg and Chaile B. Steinberg, alleged stockholders of an unspecified number
of shares of the Company's common stock. The complaint names the Company and
certain of its current and former officers and directors as defendants including
William P. Foley, II, James J. Gillespie, Harvey Fattig, Joseph N. Stein,
Richard A. Peabody, James T. Holder, Terry N. Christensen, Frederick E. Fisher,
Clarence V. McKee Burt Sugarman, C. Thomas Thompson and Peter C. O'Hara. The
Complaint also names Rally's and GIANT as defendants. As with the First Albany
complaint described above, this complaint arises out of the proposed merger
announced on September 28, 1998 between the Company, Rally's and GIANT (the
"Proposed Merger") and alleges generally, that certain of the defendants engaged
in an unlawful scheme and plan to permit Rally's to acquire the public shares of
the Company's common stock in a "going-private" transaction for grossly
inadequate consideration and in breach of the defendant's fiduciary duties. The
plaintiffs allegedly initiated the Complaint on behalf of all stockholders of
the Company as of September 28, 1998, and seeks INTER ALIA, certain declaratory
and injunctive relief against the consummation of the Proposed merger, or in the
event the Proposed Merger is consummated, recision of the Proposed Merger and
costs and disbursements incurred in connection with bringing the action,
including attorneys' fees, and such other relief as the Court may deem just and
proper. For the reasons stated above in the description of the First Albany
action, plaintiffs have agreed to provide the Company and all other defendants
with an open


                                       25
<PAGE>

extension of time to respond to the complaint. Plaintiffs have indicated that
they will likely file an amended complaint in the event of the consummation of a
merger between the Company and Rally's. The Company believes the lawsuit is
without merit and intends to defend it vigorously should plaintiffs seek to
renew the lawsuit. No estimate of possible loss or range of loss resulting from
the lawsuit can be made at this time.

            DOROTHY HAWKINS V. CHECKERS DRIVE-IN RESTAURANTS, INC. AND KPMG PEAT
MARWICK, Case No. 99-001584-CI-21. On March 4, 1999, a state court complaint was
filed in the Circuit Court in and for Pinellas County, Florida, Civil Division.
The Complaint alleges that Mrs. Hawkins was induced into purchasing a restaurant
site and entering into a franchise agreement with the Company based on
misrepresentations and omissions made by Checkers. The Complaint asserts claims
for breach of contract, breach of the implied convenant of good faith and fair
dealing, violation of Florida's Deceptive Trade Practices Act, fraudulent
concealment, fraudulent inducement, and negligent representation. The Company
denies the material allegations of the Complaint and intends to defend the
lawsuit vigorously.

            The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.

ITEM 2.     CHANGES IN SECURITIES

            On August 9, 1999, Checkers Drive-In Restaurants, Inc. and Rally's
hamburgers, Inc. completed a merger pursuant to which each outstanding share of
Rally's stock was exchanged for 1.99 shares of Checkers stock and the
approximately 19.1 million shares of Checkers common stock which Rally's had
owned was retired. Immediately following the merger, Checkers completed a
one-for-twelve reverse stock split leaving the Company with approximately 9.4
million shares outstanding.

            On September 20, 1999, the Company reduced the exercise price on
certain of its outstanding warrants by two-thirds. As a result of the repricing,
holders of the former Rally's warrants issued in the November 1996 rights
offering will receive one new Checkers warrant with an exercise price of $4.52
per share for each 6.03 former Rally's warrants they hold. The warrant term was
also extended one year to September 26, 2001. The Company is in the process of
applying to list these replacement warrants on the NASDAQ.

            The exercise prices of certain other Company warrants were similarly
reduced by two-thirds. The privately-held warrants issued in connection with the
Checkers senior debt restructuring in November 1996 were reduced from $9.00 to
$3.00 per share and the publicly-held warrants (trading symbol: CHKRW) issued to
stockholders in November 1996 were reduced from $16.50 to $5.50 per share. The
former Rally's warrants privately-held by CKE Restaurants, Inc and Fidelity
National Financial, Inc. were not repriced. The closing price of the Company's
common stock on the NASDAQ on September 17, 1999, was $2.03 per share.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

            None.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            The Annual Meetings of Stockholders of the Company was held on
August 5, 1999. At the meeting, the following actions were taken by the
stockholders.

            A proposal to adopt and approve the agreement and plan of merger,
dated as of January 28, 1999, by and between Checkers Drive-In Restaurants, Inc.
and Rally's Hamburgers, Inc. The results of the voting were as follows:

            For:                42,410,584
            Against:             3,047,578
            Abstain:               406,668

            A proposal to amend the Checkers' certificate of incorporation to
increase the authorized shares of Checkers common stock to 175 million. The
voting was as follows:

            For:                44,728,977
            Against:             3,249,255
            Abstain:               556,190



                                       26
<PAGE>

            A proposal to amend Checkers' certificate of incorporation to effect
a one-for-12 reverse stock split. The voting on the proposal was as follows:

            For:                62,909,548
            Against:             6,129,288
            Abstain:               452,551

            William P. Foley, II, Clarence V. McKee and C. Thomas Thompson were
elected as Directors to serve until the Annual Meeting in the year 2002 and
until their successors are elected and qualified or until their resignation,
removal from office or death. With terms expiring in future years, Directors
Terry N, Christensen, Peter O'Hara, Burt Sugarman and James Gillespie will
continue in their positions. The results of the voting were as follows:

            NAME                      FOR               WITHHELD
            ----                      ---               --------

            William Foley          67,013,959          2,477,429
            Clarence V. McKee      67,015,074          2,476,314
            C. Thomas Thompson     67,015,667          2,475,721

            A proposal to ratify and approve an amendment to the Checkers 1994
stock option plan for non-employee directors. The voting on the proposal was as
follows:

            For:                38,302,889
            Against:             6,219,906
            Abstain:             1,342,036

            A proposal to approve the Checkers employee stock purchase plan. The
results of the voting were as follows:

            For:                40,587,896
            Against:             4,320,090
            Abstain:               956,845

            The appointment of KPMG LLP as Checkers' independent certified
public accountants for fiscal year 1999 was ratified and approved. The voting on
the proposal was as follows:

            For:                66,284,144
            Against:             2,262,654
            Abstain:               944,590

ITEM 5.     OTHER INFORMATION

            NASDAQ MINIMUM REQUIREMENTS-SHARE PRICE UNDER $1.00

            In September 1998, the Company received notice from NASDAQ that
delisting could occur on December 18, 1998 if the Company's common stock failed
to maintain a bid price greater than or equal to $1.00 for ten consecutive
trading days during the next ninety days. The Company's common stock price did
not meet that criteria and management requested and was granted an oral hearing
to present a plan of action to NASDAQ to regain compliance with this standard.
The plan of action included the merger with Rally's Hamburgers, Inc. ("Rally's")
and a subsequent one-for-twelve reverse stock split. On June 18, 1999, the
Company was notified by NASDAQ that its listing would be continued through
August 9, 1999, the anticipated closing date of the merger. The merger with
Rally's and the one-for twelve reverse stock split was completed on August 9,
1999. Following the merger, the Company was notified by NASDAQ that it was in
compliance with the requirements necessary for continued listing on the NASDAQ
National Market

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

(a)         Exhibits:

27          Financial Data Schedule



                                       27
<PAGE>

(b)         Reports on 8-K:

            The following report on Form 8-K was filed during the quarter
covered by this report:

            The Company filed a report on Form 8-K with the Securities and
Exchange Commission dated August 24, 1999, reporting under Item 2 the merger
with Rally's Hamburgers, Inc.
















                                       28
<PAGE>



SIGNATURE
---------


            Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                             CHECKERS DRIVE-IN RESTAURANTS, INC.
                             -----------------------------------
                                        (Registrant)




Date:  October 21, 1999      By: /s/ RICHARD A. PEABODY
                                -----------------------
                             Richard A. Peabody
                             Senior Vice President and Chief Financial Officer
                             (Principal Financial and Accounting Officer)







                                       29
<PAGE>



                           SEPTEMBER 6, 1999 FORM 10-Q
                       CHECKERS DRIVE-IN RESTAURANTS, INC.
                                  EXHIBIT INDEX


EXHIBIT #                     EXHIBIT DESCRIPTION
---------                     -------------------

   27           Financial Data Schedule (included in electronic filing only).